Business fix for federal budget

The Abbott government’s five-member Commission of Audit is headed by Business Council of Australia president Tony Shepherd, whose organisation has been pushing for over a year for a root-and-branch audit of the economy.
Photo: Louie Douvis

by
Phillip Coorey | Chief political correspondent

The Abbott government has put business figures in charge of a Commission of Audit with sweeping authority to ­recommend the government do whatever it takes to return the budget to strong surplus within a decade and avoid breaching a new $500 billion debt ceiling.

Extremely broad terms of reference approved by federal cabinet on Tuesday pave the way for spending cuts, privatising remaining federal assets, tax increases, reducing middle-class welfare and federal-state overlap, smaller government, increased outsourcing, and the abolition and consolidation of government agencies and services.

The five-member commission will be headed by the Business Council of Australia president Tony Shepherd, whose organisation has been pushing for over a year for a root-and-branch audit of the economy to reduce the size of government, remove inefficiencies, reform taxes and put the nation on a sustainable path to surplus.

The commission will issue an interim report by the end of January and a final report by the end of March, enabling the new government to ­incorporate recommendations in its first budget in May.

While economists welcomed the broad scope given to the panel, they said the test of the government’s resolve would be in the measures it adopted.

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Bank of America Merrill Lynch economist Saul Eslake commended both the “top-shelf" calibre of the panel and the scope of the terms of reference.

Bold reform agenda

“If done well – and given the commission’s membership it probably will be – the commission’s report will either ­provide the basis for a bold and visionary reform agenda not only for the 2014-15 budget but also for a second term of government, or it will prove an embarrassment for the government and gather dust like the Officer audit to the Howard government which had similarly expansive terms of reference."

Apart from Mr Shepherd, the panel will comprise former Howard government minister Amanda Vanstone, a former chief of staff to Peter Costello, Peter Boxall, former treasury secretary Tony Cole, and a former executive director of the Western Australian Department of State Development, Robert Fisher.

The secretariat will be headed by the Business Council’s chief economist and director of policy, Peter Crone. ­Unveiling the commission and its terms of reference, Treasurer Joe Hockey said in adopting any recommendations, the Coalition would not break any election promises.

“But we are determined to live within our means," he said.

He blamed the previous Labor government for the need to increase the debt ceiling from $300 billion to $500 billion.

Treasury had advised that debt would breach the $300 billion ceiling on December 12 and eventually rise as high as $460 billion, he said.

Removing the debt ceiling

Elevating the ceiling to $500 billion would ensure it would never again need to be lifted, he said, and measures the government would adopt from the audit would ensure this.

Cabinet debated removing the debt ceiling altogether but decided there needed to be a cap if only to keep ­ministers and their spending plans under control.

Mr Hockey repeated Mr Abbott’s pre-election promise to deliver a “strong" surplus of 1 per cent of GDP by 2023-24. He added the budget would return to a lesser surplus before that but did not specify a year.

Opposition finance spokesman Tony Burke said the exercise was a ­harbinger of severe cuts and broken promises, akin to the audit process instituted in Queensland by the Newman government after it was elected.

“They have a commission which is aimed at cuts, which go across every area of government; areas we were told were immune will not be immune," he said.

Mr Burke said the government should not ask Parliament to lift the debt ceiling to the equivalent of one-third of GDP until it had released the Mid-Year Economic and Fiscal Outlook to justify why the increase was needed.

Exposed himself as a hypocrite

In opposition, Mr Hockey was ­frequently and severely critical of Labor when it needed to increase the debt ­ceiling. Mr Burke said the Treasurer had exposed himself as a hypocrite.

“I don’t think many Australians would have predicted that the same people who claimed debt was a massive problem in Australia, who claimed there was a budget emergency, were then going to stand up and say ‘by the way, Australia’s debt level should be allowed to go to half a trillion dollars.’

“This is a very different government to what Australians were being told they were electing."

Following a six-hour cabinet meeting, Mr Hockey and Finance Minister Mathias Cormann released the terms of reference which Mr Hockey said were deliberately broad “to ensure we never have to reach the debt limit".

The terms of reference asked the commission to target everything from the scope of government to the efficiency of expenditure, the adequacy of budgetary disciplines and the state of the federal government’s finances.

In the latter category, the commission will examine “the long-term ­sustainability of the budget position, identifying key policy areas where trends in expenses and revenue pose risks to the structural integrity of the budget".

Selling Medibank

Under efficiency of expenditure, it asks the commission to examine a number of options including privatisation, improving the productivity of the public sector and “anything that is ­reasonably necessary or desirable to improve the efficiency and effectiveness of government generally".

Significant federal assets include Australia Post and Medibank Private. Selling Medibank has long been Coalition policy and remains so. Senator ­Cormann said a decision to put it on the market would soon be announced.

Prime Minister Tony Abbott promised before the election not to adopt any recommendations from the commission for which he would not have a mandate. Straight after the announcement, Senator Cormann listed areas that would be exempt from cuts, regardless of recommendations. He said health and education spending would be exempt from cuts.